Today the CME Group announced it is launching Bitcoin options trading in early 2020, subject to regulatory approval. The derivatives marketplace has offered Bitcoin futures since December 2017.
The announcement timing is interesting as the CME has a new competitor in Bakkt, formed by NYSE owner ICE. Bakkt is about to release Bitcoin futures which settle by physical delivery of Bitcoin, as opposed to the CME’s cash settlement. Bakkt’s futures launch this Sunday, September 22nd.
“Based on increasing client demand and robust growth in our Bitcoin futures markets, we believe the launch of options will provide our clients with additional flexibility to trade and hedge their bitcoin price risk,” said Tim McCourt, CME Group Global Head of Equity Index and Alternative Investment Products.
“These new products are designed to help institutions and professional traders to manage spot market bitcoin exposure, as well as hedge Bitcoin futures positions in a regulated exchange environment.”
According to the CME, there were a record 56 large open interest holders in July, apparently representing institutional interest.
The company says average daily volume has been equivalent to 35,000 bitcoin. For August our figures indicate the number was 22,680. Year-to-date volumes have almost doubled since 2018.
This is still tiny compared to today’s spot market 24-hour volume of roughly 1.6 million coins (according to CoinMarketCap). However, a recent report from Bitwise published on the SEC website claims that 95% of reported spot exchange volume is fake, which may mean that the real daily spot volume is closer to 80,000. In which case, CME volumes represent a significant proportion. (CoinMarketCap plans to change the way it reports volumes.)
The CME touts the benefits of options as the potential to save on margins, through margin offsets.
It remains to be seen if the options get regulatory approval. Options are by their nature volatile because they’re based more on price movements than prices themselves. To buy options on a product which has volatile prices is very risky.
Plus there has been much debate about the spot prices themselves and the potential for market manipulation.
Bitcoin futures were launched on both the CME and CBOE at roughly the same time. But there wasn’t much traffic for the CBOE. On many days the bitcoin equivalent volume for CBOE was less than 10% of that of the CME. In March of this year, the CBOE pulled the cryptocurrency product.
The suspicion is that Bakkt could offer more serious competition.